Powersim's Business Modeling and Simulation Tools Are Built Right In to SAP SEM

There are plenty of tools available to help you obtain a clearer
picture of your business's current performance: spreadsheets, tables,
graphs, operating results, and status reports. But what about understanding
the factors behind future profitability?

Business forecasting is a thorny
area for many enterprises, made even more difficult by the increasingly
complex global economy, constantly changing business environments,
and the challenges of quantifying uncertainty and risk. It often
tests the limits of spreadsheets and status reports, and even current
statistical forecasting methods are hard-pressed to explain what
is driving future sales, or how competitors will behave when you
lower your prices.

Business simulation can aid in
decision-making that projects complex what-if scenarios, offering
a reliable way to evaluate the likely effects of different decisions
and variables. Simulation and modeling enhance and complement spreadsheets,
OLAP tools, and risk-analysis software by combining both historical
data and "cause-and-effect" assumptions about future performance.

Business analysts and line managers need a flexible tool that allows
them to design, model, and evaluate possible future scenarios while also
considering multiple related factors and their expected influence on performance.
Business analysts are creating and defining the business model in an intuitive,
graphical way, and together with the line managers, they perform "what-if"
analysis and analyze "how-
to-achieve" questions.

SAP provides these functions as an extension
of SAP's business planning and budgeting capabilities by delivering Powersim
simulation tools with mySAP Financials Strategic Enterprise Management
(SEM).

Powersim Business Simulation Tools and SAP SEM

SAP incorporated business scenario simulation capabilities with the integration
of Powersim's software into its SEM key capability in 1999. Controllers
and managers benefit from Powersim's sophisticated dynamic business simulation
capabilities teamed with the strength of SAP's planning models and methods
for generating strategies, targets, and budgets.

Managers, analysts, and consultants benefit
from a range of features for graphical business modeling, simulation,
and risk management - all of which are bundled in the Powersim Studio
software suite. Powersim Studio is designed to cope with real-world business
situations, addressing complexity as well as dynamic and risk-related
issues.
The Powersim software suite has a similar look and feel to that of popular
spreadsheets, but with the key addition of a built-in time dimension and
graphical diagrams instead of a spreadsheet's grid of cells.

As an integral part of SAP's SEM solution,
the Powersim suite is enhanced by powerful multidimensional planning,
modeling, and budgeting processes. Simulation models then become part
of SAP SEM data, can be shared worldwide within the corporate environment,
and take advantage of a scalable client/server architecture, with
benefits like:

Frontend integration: A single point of entry for both budgeting
and
simulation.

Powersim Studio lets you draw simulation models easily, using familiar
drag-and-drop tools in a Windows environment. For novice users, Powersim
can keep the number of elements to a minimum, making it easy to build
a simple dynamic business simulation model that can increase in complexity
over time (see Figure 1).

Figure 1

Modeling and Visualization of a One-Time Investment Decision

In Figure 1, the user has accessed Powersim
Studio to model a one-time modernization investment in a plant, and is
considering financing funded by business operations. Different financial
and non-financial performance indicators (e.g., effect of investment on
production efficiency) are shown in causal relationships indicated by
arrows.

As with standard spreadsheets, each model
can be divided into small logical pieces, which are connected together
in a "project," and each section is displayed in a different
folder.

Multiple
Languages and
Easy Localization

Powersim Studio has full multi-lingual support for international use,
and the latest release includes complex languages such as Japanese and
Chinese to ensure easy localization, independent of core modeling activities.

Support
for Object Orientation
and Reuse

Powersim Studio not only allows you to draw new models, but to reuse
existing models. You can define a library of individual models for reuse.
Powersim also provides predesigned, best-practice simulation models, to
make the process even faster and easier. Plans for future versions of
Powersim Studio include the ability to create hierarchical simulation
models. For example, if a divisional manager draws a high-level, aggregated
model of the entire division, you can access more detailed views for different
parts of the division (e.g., product lines) to drill down not only on
data, but also on simulation models.

Detailed
Scenario Management

For managers using simulation to perform what-if analysis, Powersim Studio
provides a decision panel builder as well as comprehensive scenario management.
When managers carry out many simulation runs under different assumptions,
you can save and compare not only the results, along with the assumptions
behind those simulations.

In Figure 2, the "Decisions"
and "Assumptions" panels in SAP SEM is displayed for the one-time
investment simulation shown in Figure 1. In the "Decision" window,
you see a slider that determines the percentage of revenues reinvested
in the production efficiency. To the right, you see the curve describing
the limited effects of investments in production efficiency. Finally the
"Assumptions" panel provides those variables that can't be influenced
by the decision-maker. (As users simulate what-if scenarios, they can
adjust these settings.)

Figure 2

Decision Panel for the One-Time Investment Simulation

More Than Just Better Forecasting: Further Benefits of Business
Simulation and Modeling

Business simulation is a versatile tool that can be used in several
areas of your business - whether at the operational or strategic
level - including:

Competitive strategy

Product portfolio management

Service and support

Workforce planning

Pricing

Financial forecasting

Investment planning

Simulation can be applied to both
short- and long-term scenarios, such as to analyze long-term ongoing
situations (e.g., market simulations) or on a case-by-case basis
(modeling a one-time investment).

In the end, the benefits of simulation
really boil down to improving two key areas: decision support and
communication. Beyond allowing you to calculate the impact of decisions
on your company's future performance, simulation is also an excellent
tool to help managers understand the real impact of certain financial
and non-financial indicators. It can also:

Prevent expensive mistakes, by prototyping different ideas
and strategies

Provide more accurate long-term planning

Explore business dynamics, including feedback and time lags

Allow users to use online capabilities to collaboratively create
and compare simulations

Linking Future Scenarios with Current Business Data

The SEM solution of mySAP Financials is based on the OLAP technology
of the SAP Business Information Warehouse (BW). Data from both SAP and
non-SAP sources are extracted and stored within the SAP SEM OLAP database.
By linking the OLAP database with simulation, users can process both models
of and information on a business. Importing data from SAP SEM
to Powersim, the user can rely on historical data in the simulation model,
while simulated results can be transferred back to SEM as plans, budgets,
scenarios, or forecasts.

Powersim Studio provides a ready-to-use
connectivity to SAP SEM. You can easily link your simulation model to
planning levels (e.g., Investment Planning, Profitability Planning) and
exchange master and transaction data in both directions. For instance,
by taking sales data from SEM and transferring it into a business simulation
model of your sales market in order to test the model against historical
data. The output of the simulation model (e.g., expected prices) can then
be transferred back to SEM for further use.

In addition to the easy access to transaction
data, you can also transfer metadata and master data, so that the simulation
models are based on the same OLAP structure as the planning levels in
SAP SEM. The whole integration setup is handled through the "data
set" element in Powersim Studio.

Conclusion

The new challenges in managing
e-business require new support tools for forecasting and long-term planning.
Powersim Studio, together with SAP SEM, provide both the integrated financials
planning and budgeting capabilities needed to meet those challenges.

Ulrich Hauke joined SAP
in 1997 and is a mySAP Financials Product Manager in SEM. He accompanied
the SEM rollin and rollout from its beginnings in 1998 and gained experience
in the area of analytical applications. From the business perspective,
he is an expert in Strategic Planning, Performance Management, and Value-Based
Management.